1. Chapter 20
PENSIONS
Day 1

2. Exercise
20-2: Computation
of Pension Expense

3. Rebekah Co. provides following info about its defined benefit
pension plan for the year 2011.
Service cost…………………… $ 90,000
Contribution to plan………….$105,000
Prior service cost amortization.. $10,000
Actual and expected return on P.A. $64,000
Benefits paid…………………… $40,000
Plan assets at 1/1/11………………………$640,000
Projected Benefit Obligation at 1/1/11…. $800,000
AOCI (PSC) at 1/1/11…………………..… $150K
Interest/discount (settlement) rate…………. 10%

4. S I R P G O L Compute the pension expense for the year 2011.
ervice Cost:
$90,000
$80,000
Beg PBO x i/r
nterest Cost
$800K x .10
eturn on Plan Assets (actual) (
$64,000 )
S I R P G O L
rior Service Cost Amortization
$10,000
ain r
oss Component

5. S I R P G O L $116,000 Compute the pension expense for the year 2011.
ervice Cost:
$90,000
$80,000
Beg PBO x i/r
nterest Cost
$800K x .10
eturn on Plan Assets (actual) (
$64,000 )
S I R P G O L
rior Service Cost Amortization
$10,000
ain
$116,000 r
oss Component

6. E 20-3

7. Using information from E 20-2 prepare a PENSION WORKSHEET
inserting 1/1/11 balances, showing December 31, 11 balances
and the journal entry recording pension expense.
What does the LEFT side of the PWS show?
FORMAL ENTRIES? which means?
They get shown on the Balance Sheet,
Income Statement or Comprehensive
Income Statement
What does the RIGHT side of the PWS show?
INFORMAL ENTRIES? which means?
They get put in the footnotes

8. Start by filling in 1/1/11 figures……….Dr
Pension
Expense Cr
Pension
Asset/Liab Cr
Cash Cr Dr
PBO
Plan Assets
Items
Beg Bal at 1/1/11
Service
Cost
Interest
Cost
Actual
Return
Contributions
Start by filling in 1/1/11 figures……….

9. They have outstanding debt of $800,000 Dr
Pension
Expense Cr
Cash Cr
Pension
Asset/Liab
Dr.
OCI
PSC Dr Cr
Plan Assets
Items
PBO
Beg Bal at 1/1/11
$800,000Cr
$640,000Dr
$160,000Cr
Service
Cost
Interest
Cost
They have outstanding debt of $800,000
but have set aside $640,000 to cover it.
Thus they must show a pension
Liability of $160,000.
Actual
Return
Contributions

10. Dr Pension Expense Cr Cash Cr Pension Asset/Liab Dr. OCI PSC Dr Cr
Plan Assets
Items
PBO
Beg Bal at 1/1/11
$800,000Cr
$640,000Dr
$160,000Cr
Service
Cost
$90,000 Dr
$90,000 Cr
Interest
Cost
$80,000 Dr
$80,000 Cr
Actual
Return
$64,000 Cr.
$64,000 Dr.
Contributions
$105K Cr
$105K Dr
Amtz of
PSC
$10,000 Dr.
$10,000 Cr.
Benefits
Paid
105K Cr ,000 Cr
$40,000 Dr
$40,000 Cr
Jrn ent $116,000 Dr

11. Pension Expense….$116,000 Cash……………….$105,000 AOCI (PSC)………$10,000Dr
Pension
Expense Cr
Cash Cr
Pension
Asset/Liab
Dr.
OCI
PSC Dr Cr
Plan Assets
Items
PBO
Beg Bal at 1/1/11
$800,000Cr
$640,000Dr
$160,000Cr
Service
Cost
$90,000 Dr
$90,000 Cr
Pension Expense….$116,000
Cash……………….$105,000
AOCI (PSC)………$10,000
Pension Asset/Liab $ 1,000
Interest
Cost
$80,000 Dr
$80,000 Cr
Actual
Return
$64,000 Cr.
$64,000 Dr.
Contributions
$105K Cr
$105K Dr
Amtz of
PSC
$10,000 Dr.
$10,000 Cr.
$1,000 Cr
Benefits
Paid
105K Cr ,000 Cr
$40,000 Dr
$40,000 Cr
Jrn ent $116,000 Dr

12. Pension Expense….$116,000 Cash……………….$105,000 AOCI (PSC)………$10,000Dr
Pension
Expense Cr
Cash Cr
Pension
Asset/Liab
Dr.
OCI
PSC Dr Cr
Plan Assets
Items
PBO
Beg Bal at 1/1/11
$800,000Cr
$640,000Dr
Pension Expense….$116,000
Cash……………….$105,000
AOCI (PSC)………$10,000
Pension Asset/Liab $ 1,000
$160,000Cr
Service
Cost
$90,000 Dr
$90,000 Cr
Interest
Cost
$80,000 Dr
$80,000 Cr
Actual
Return
$64,000 Cr.
$64,000 Dr.
Contributions
$105K Cr
$105K Dr
Amtz of
PSC
$10,000 Dr.
$10,000 Cr.
Benefits
Paid
$40,000 Dr
$40,000 Cr
Jrn ent $116,000 Dr
105K Cr ,000 Cr
$1,000 Cr
Acc OCI 12/31/10
$150,000Dr.
Bal 12/31/ $140,000Dr $930,000 Cr $769,000Dr

13. Reconciliation: $930,000 CR - $769,000 DR -------------------
Pension
Expense Cr
Cash Cr
Pension
Asset/Liab
Dr.
OCI
PSC Dr Cr
Plan Assets
Items
PBO
Beg Bal at 1/1/11
$800,000Cr
$640,000Dr
$160,000Cr
Service
Cost
$90,000 Dr
$90,000 Cr
Reconciliation:
$930,000 CR -
$769,000 DR
$161,000 CR
Interest
Cost
$80,000 Dr
$80,000 Cr
Actual
Return
$64,000 Cr.
$64,000 Dr.
Contributions
$105K Cr
$105K Dr
Amtz of
PSC
$10,000 Dr.
$10,000 Cr.
Benefits
Paid
$40,000 Dr
$40,000 Cr
Jrn ent $116,000 Dr
105K Cr ,000 Cr
$1,000 Cr
Acc OCI 12/31/10
$150,000Dr.
$ Cr
Bal 12/31/ $140,000Dr $930,000 Cr $769,000Dr

14. Basic Pension Worksheet
Exercise E 20-4
Basic Pension Worksheet

15. The following facts apply to pension of Trudy Borke for year 11:
Plan assets 1/1/11………………….. $490K
PBO (1/1/11)………………………… 490K
Settlement rate……………………… %
Annual pension service cost………. $40,000
Contributions (funding)…………… $30,000
Actual return on plan assets……….. $49,700
Benefits paid to retirees……………. $33,400
Required: Using data above, compute pension expense for 11
by doing a PWS.

16. Dr
Pension
Expense Cr
Cash Cr
Pension
Asset/Liab Cr Dr
PBO
Plan Assets
Items
Beg Bal at 1/1/11
$490,000
$490,000
Service
Cost
40,000Dr
40,000Cr
Interest
Cost
$41,650Dr ($490K x .085)
$41,650Cr
Actual
Return
$49,700Cr
$49,700Dr
Contributions
30,000Cr
30,000Dr
Benefits paid
33,400Dr
33,400Cr
Journal: $31,950Dr $30,000Cr $1,950Cr
$1,950Cr $538,250Cr $536,300Dr

17. Exercise 20-7
Basic Pension
Worksheet

18. The following defined pension data of Doreen Corp. apply
to the year 11.
PBO (1/1/11 before amendment)…….. $560,000
Plan assets (1/1/11)…………………… ,200
Pension liability ………… ,800
On 1/1/11 through amendment, grants
prior service benefits with PV of…… ,000
Settlement Rate……………………… 9%
Annual pension service cost………… ,000
Contributions (funding)……………… ,000
Actual (expected) return on P.A… ,280
Benefits paid to retirees…………… ,000
Prior service cost amortization for ,000
Required: Prepare PWS.

19. Dr Pension Expense Cr Cash Cr Pension Asset- Liab Dr OCI- PSC Cr Dr
Items
PBO
Plan Assets
Beg Bal at 1/1/11
$13,800Cr
$560,000Cr
$546,200Dr
$100,000Dr
From PSC amendment
$100,000Cr
Service
Cost
58,000Dr
58,000Cr
Interest
Cost
$59,400Dr
$59,400Cr ( $660,000 x .09)
Actual
Return
$52,280Cr
$52,280Dr
Contributions
55,000Cr
55,000Dr
Amortz of PSC
$17,000Dr
$17,000Cr
Benefits paid
40,000Dr
40,000Cr
$82,120Dr $55K Cr $110,120Cr $83,000Dr
$737,400Cr $613,480Dr

20. RECONCILIATION Dr Pension Expense Cr Cash Cr Pension Asset- Liab Dr
OCI-
PSC Cr Dr
Items
PBO
Plan Assets
Beg Bal at 1/1/11
$13,800Cr
$560,000Cr
$546,200Dr
$100,000Dr
From PSC amendment
$100,000Cr
Service
Cost
RECONCILIATION
58,000Dr
58,000Cr
Interest
Cost
$59,400Dr
$59,400Cr ( $660,000 x .09)
PBO $737,400 -
Plan
Assets $613,480
Pension
Liability $123,920
Actual
Return
$52,280Cr
$52,280Dr
Contributions
55,000Cr
55,000Dr
Amortz of PSC
$17,000Dr
$17,000Cr
Benefits paid
40,000Dr
40,000Cr
$82,120Dr $55K Cr $110,120Cr $83,000Dr
$737,400Cr $613,480Dr
$123,920

21. Exercise 20-8

22. Dougherty Corp. has beg-of-year PVs for its PBO and MRVPA. PBO MRVPA
2009 $2,000,000 $1,900,000
,400, ,500,000
,900, ,600,000
,600, ,000,000
The average remaining service life per employee in 09 and 10 is
10 years and in 11 and 12 is 12 years.
The net gain or loss that occurred during each year is as follows:
2009, $280,000 loss;
$90,000 loss
$10,000 loss
$25,000 gain
(In working the solution the gains and losses must be aggregated
to arrive at year-end balances).
Using the corridor approach, compute the amount of net gain or loss
amortized and charged to pension expense in each of the four years,
setting up an appropriate schedule.

23. Gain or Loss Component of Pension Expense
OCI
Gains and Losses
Unexpected
Gains and Losses
Actual RPA not equal
to expected RPA
Liability
Gains and Losses
Unexpected
Gains and Losses
Actuary PBO not
equal to Book PBO
Actual RPA not equal
to expected RPA

24. What is the corridor in 2009? Beg PBO $2,000,000 x .10 = $200,000 vs
Beg MRVPA $1,900,000 x .10 = $190,000
How much OCI loss gets over the corridor in 2009?
NONE!
Because there was no balance at 1/1/09
* The $280,000 loss was incurred DURING 2009.

25. What is the corridor in 2010?
Beg PBO $2,400,000 x .10 = $240,000 vs
Beg MRVPA $2,500,000 x .10 = $250,000
How much OCI loss gets over the corridor in 2010?
$280,000 - $250,000 = $30,000/10 = $3,000

26. How much of the 1/1/10 OCI loss is still left?
$280,000 - $3,000 = $277,000
So what’s the balance at 1/1/11 of OCI gain/loss?
$277,000(from 09) + $90,000(during 10) = $367,000
How much OCI loss gets over the corridor in 2010?
$280,000 - $250,000 = $30,000/10 = $3,000

27. What is the corridor in 2011?
Beg PBO $2,900,000 x .10 = $290,000 vs
Beg MRVPA $2,600,000 x .10 = $260,000
How much OCI loss gets over the corridor in 2011?
$367,000 – 290,000 = $77,000 / 12 = $6,417

28. How much of the 1/1/11 unrecognized loss is still left?
$367, ,417 = $360,583
So what’s the balance at 1/1/12 of unrecognized gain/loss?
$360,583 + $10,000 = $370,583
How much unrecognized loss gets over the corridor in 2011?
$367,000 – 290,000 = $77,000 / 12 = $6,417

29. What is the corridor in 2012?
Beg PBO $3,600,000 x .10 = $360,000 vs
Beg MRVPA $3,000,000 x .10 = $300,000
How much unrecognized loss gets over the corridor in 2012?
$370,583 - $360,000 = $10,583/12 = $882
How much of the 1/1/12 unrecognized loss is still left?
$370, = $369,701
So what’s the balance at 1/1/13 of unrecognized gain/loss?
$369,701 - $25,000 gain = $344,701 UNRECOGNIZED LOSS

30. Exercise 20-9

31. Mildred Enterprises provides the following information relative to its defined
benefit pension plan:
Balances or Values at 12/31/11
Projected Benefit Obligation $2,737,000
Accumulated Benefit Obligation ,980,000
Fair value of plan assets ,278,329
AOCI (PSC) ,000
AOCI (G/L) (1/1/11 bal, -0-_ ,680
Pension liability ,991
Other pension plan data:
Service cost for $ 94,000
Unrecognized prior service cost amtz for ,000
Actual return on plan assets in ,000
Expected return on plan assets in ,680
Interest on January 1, 2011 PBO ,000
Contributions to plan in ,329
Benefits paid ,000

32. Prepare the NOTE disclosing the components of pension expense
for year 2011.
ervice Cost
$94,000 (given)
$253,000 (given)
nterest Cost
eturn on Plan Assets
$175,680
MUST show expected!
S I R P G O L
rior Service Cost
$45,000 (given) amortization for 2011
ain
NO unrecognized loss adjustment here because
beginning balance was zero. r
oss
PENSION EXPENSE.. $216,320

33. Determine the amounts of other comprehensive income and
comprehensive income for Net income for 2011 is $35,000.
OTHER COMPREHENSIVE INCOME
Amortization of PSC ($45,000)
* The amtz of PSC into pension expense
makes comprehensive income INCREASE
(its like its not in fake NI anymore, its in
real NI).
Actuarial Loss $45,680
OTHER COMPREHENSIVE LOSS $680

34. Determine the amounts of other comprehensive income and
comprehensive income for Net income for 2011 is $35,000.
COMPREHENSIVE INCOME FOR 2011
Real Net income $35,000
-OCI Loss $680
COMPREHENSIVE INCOME $34,320

35. c. Compute the amount of AOCI reported at 12/31/11
Beginning AOCI 1/1/11 PSC G/L
Beginning Balance
$250,000
(205K bal given +
45K which was amtz
this year) $0
Amortization of PSC ($45,000)
Liability Loss (45,680)
Ending balance 12/31/ $205,000 Dr $45,680 Dr